|12 Months Ended|
Dec. 31, 2018
|Subsequent Events [Abstract]|
NOTE 26. SUBSEQUENT EVENTS
In current reports on Form 8-K filed on March 11, 2019 and March 22, 2019, the Company disclosed that it had entered into certain securities purchase agreements (the “Purchase Agreements”) with certain investors (the “Investors”), which the Company sold an aggregate principal amount of $22,700 in convertible notes (the “Notes”) between January 2017 and January 2019. Approximately $9,800 of principal and interest had been converted into 5,186,306 shares of the Company’s Common Stock through March 19, 2019. These issuances were not supported by a listing application with the New York Stock Exchange (“Exchange’), which resulted in the Company receiving a public reprimand letter from the NYSE Regulation Staff of the Exchange on March 25, 2019. On March 22, 2019, the Company announced the initiation of an independent investigation (the “Investigation”) of these issuances and engaged K&L Gates LLP and Credibility International, LLC, an independent forensic accounting firm (together, the “Team”) to conduct the Investigation.
Scope of the Investigation
The Investigation focused primarily on the following areas: (i) whether prior management, including former Chief Executive Officer, (“former CEO”), Michael Palleschi, and former Chief Financial Officer (“former CFO”), David Lethem, had proper authorization to issue the Notes; (ii) whether the Company properly accounted for and disclosed certain expenses incurred by prior management; (iii) the use of personal credit cards by employees to pay routine Company expenses; (iv) whether the Company properly entered into and disclosed certain related party transactions (v) whether certain transactions were improperly reported to increase revenue; (vi) the payment of certain wage and salary amounts to employees; (vii) the Company’s interactions with its external auditors; and (viii) issues related to Mr. Palleschi’s compensation.
In connection with the Investigation, the Team visited the Company’s Naples, Florida office and collected hard copy documents, created images of electronic equipment belonging to various members of the prior management team, copied many folders from the Company’s SharePoint database, conducted multiple interviews with sixteen individuals, and collected and processed over four hundred thousand e-mails and documents.
Findings of the Investigation
The Team found the following:
1. Issuances of the Notes.
In numerous instances, prior FTE management, including Mr. Palleschi and Mr. Lethem, caused the Company to issue the Notes as well as other financings without proper Board authorization. Specifically, the Team found: (i) several issuances for which the supporting resolutions did not comply with Nevada state law and the Company’s bylaws; (ii) several issuances for which there were no Board resolutions; and (iii) several issuances for which the supporting resolutions had been falsified. Moreover, the prior management caused the Company to make incomplete disclosures about the Notes in its required SEC filings for fiscal year 2017 and the first three quarters of fiscal year 2018. Notably, because of the prior management, the Company did not disclose that each of the Notes contained a conversion feature that allowed the holders of the Notes to convert the debt into the Company’s Common Stock.
2. Reimbursement of Expenses and the Use of Personal Credit Cards for Business Expenses.
The Investigation revealed that prior management misused Company funds for personal expenses, including charter flights and automobile leases. The Team also found that prior management instructed FTE employees to charge FTE-related business expenses to their personal credit cards from 2018 forward. However, the Team found that the expenses charged pursuant to such instruction were largely business-related.
3. Related Party Transactions.
The Team found that prior management caused the Company to engage in numerous related party transactions, some of which were implemented to the Company’s detriment and were not disclosed properly or were not disclosed at all. Such transactions included loans provided to the Company by former officers and directors, as well as instances of deferred salary or deferred bonus pay. The Team identified transactions between the Company and former officers or directors, as well as between the Company and entities controlled by former officers or directors.
4. Revenue Recognition and Interaction with Auditors
The Team found that prior management caused the Company to improperly recognize revenue in 2016 and 2017. The revenue was recorded to unbilled Accounts Receivable and later written off in three separate transactions during 2018. The Team also found that members of prior management provided inaccurate and incomplete statements to the Company’s former independent registered public accounting firm, Marcum LLP, (“Marcum”) regarding the basis for recognizing the revenue.
5. Payment of Certain Wages, Salary Amounts and Payroll Expenses
The Team found that the Company’s former CEO, Mr. Palleschi, engaged in improper conduct in connection with his compensation including the following: (i) Mr. Palleschi, without proper authorization, caused the Company to amend his employment agreement, significantly increasing his salary and bonus pay; (ii) Mr. Palleschi, without proper authorization, caused the Company to grant him deferred compensation and to issue “demand notes,” which characterized the deferred compensation as debt of the Company owed to Mr. Palleschi, this mischaracterization resulted in the Company making three substantial wire transfers to Mr. Palleschi to pay him the amounts he was owed on the “demand notes; and (iii) Mr. Palleschi, without proper authorization, caused the Company to enter into a release agreement under which the Company agreed to pay amounts purportedly owed to Messrs. Palleschi and Lethem, in exchange for a mutual release. The Team also found that each of the payments noted above were made without the withholding of income taxes. In addition, the Team identified multiple instances where Messrs. Palleschi and Lethem made or attempted unsupported cash payments to themselves and certain family members, through direct wire transfers, PayPal and other means. Furthermore, the Team identified three instances in which the Company paid each of its employees through direct wire transfer rather than through its outside payroll processing firm. In each instance the Company wired the amount due, net of income taxes, but failed to remit payroll taxes.
Further to the findings of the Investigation as noted above, the Company also has found that former management created and distributed false and misleading documents to its internal accounting staff resulting in improper accounting for (i) convertible notes by removing certain language regarding conversion features and registration rights, (ii) revenue recognition by falsifying support for unbilled revenue, (iii) compensation and characterization of certain cash disbursements, (iv) related party transactions and (v) equity issuances which were later determined to be improperly authorized, and other issues. The Company also found that former management withheld requested documentation and similarly provided false and misleading documents to its former independent registered public accounting firm.
The Company self-reported the matters raised in the Investigation to both the U.S. Securities and Exchange Commission (“SEC”) and the New York County District Attorney’s Office (“NYCDA”), and kept both agencies, along with the U.S. Attorney’s Office for the Southern District of New York (“SDNY”), updated on its progress throughout the Investigation. The Company continues to cooperate with all three agencies.
The Company has also taken numerous remedial actions in response to the findings of the Investigation. Most notably, the Company has made dramatic changes to its management team, completely replacing senior management, including Messrs. Palleschi and Lethem as well as the majority of its former Board of Directors. The Company has also restated its financial statements for fiscal year 2017 and the periods ended March 31, June 30 and September 30, 2018 and 2017, as discussed below. Among other things, the restatement corrects the improperly recognized revenue identified by the Investigation and account for the convertible feature of the Notes. In addition, the Company has taken significant steps to improve its policies and procedures and internal controls relating to, among other things, the following: (i) tracking, approving and disclosing all issuances of equity and debt; (ii) its expense reimbursement policy; and (iii) tracking, approving and disclosing related party transactions. See “Item 9A Controls and Procedures”.
Finally, to remedy deficiencies in its equity issuances, the Board of Directors held a total of four special meetings on April 29, May 7, May 8, and May 13, 2019, respectively, at which it reviewed all equity issuances and decided which issuances were (i) valid; (ii) noncompliant but should be ratified; (iii) noncompliant but would not be challenged; and (iv) noncompliant and should be nullified. As a result, certain issuances to convertible noteholders, current and former personnel and related parties were nullified. Additionally, the Company sent a letter to its shareholders, dated May 23, 2019, to notify them of noncompliant issuances that were approved and validated during the Board’s review.
Departure of Executive Officers
On January 17, 2019, Lynn Martin, the Company’s then-Chief Operating Officer, resigned from the Company, effective January 25, 2019.
On January 19, 2019, Michael Palleschi, was granted a temporary leave of absence by the Board. On May 11, 2019, Mr. Palleschi notified the Company of his resignation from the Company’s Board and as the Company’s CEO. On May 13, the Board accepted Mr. Palleschi’s resignation from the Board, without compensation and without a release, and terminated his employment as the Company’s CEO on May 13, 2019.
On January 19, 2019, Anthony Sirotka, the Company’s former Chief Administrative Officer, was appointed as the Company’s Interim CEO. On June 27, 2019, Mr. Sirotka was placed on administrative leave. Mr. Sirotka resigned on October 2, 2019.
On March 11, 2019, David Lethem, the former CFO, resigned from the Company, effective March 11, 2019.
Non-Reliance on Previously Issued Financial Statements
The Company announced on April 2, 2019, that the Audit Committee (“Audit Committee”) of FTE, following a communication by Marcum, LLP, the Company’s former registered independent public accounting firm, concluded that previously issued audited financial statements as of and for the year ended December 31, 2017, and interim reviews of the financial statements for the periods ended March 31, June 30, and September 30, 2018 and 2017, should no longer be relied upon. The conclusion to prevent future reliance on the aforementioned financial statements resulted from the determination that such financial statements failed to properly account for certain convertible notes and other potentially dilutive securities. Specifically, the Company identified a potential issue related to the accounting related to certain convertible notes and other potentially dilutive securities the Company issued in 2017, 2018, and during January of 2019.
On June 11, 2019, the Audit Committee, following a communication by Marcum, concluded that the Company’s previously issued audited financial statements as of and for the years ended December 31, 2017 and 2016 and completed interim reviews for the periods ended March 31, June 30, and September 30, 2018, 2017 and 2016 should no longer be relied upon. The conclusion on June 11, 2019 to add the aforementioned 2016 financial statements to those statements which should no longer be relied upon resulted from determinations made as part of the Company’s ongoing restatement effort that certain items, including revenues originally recognized in 2016, should no longer be recognized.
See Note 2 and Note 25 for the impacts on the financial statements for the years ended December 31, 2017 and 2016 as well as the impacts on the quarterly financial statements for the years ended December 31, 2018 and 2017.
Amendment No. 4 to Lateral Credit Agreement
On February 12, 2019, the Company and certain of its wholly-owned subsidiaries entered into Amendment No. 4 (the “Fourth Amendment”) to the credit agreement dated October 28, 2015, by and among Jus-Com, Inc., certain other Company subsidiaries, Lateral Juscom Feeder LLC (“Lateral”) and several lenders party thereto (together with Lateral, the “Lenders”) (as amended, the “Credit Agreement”). The Fourth Amendment provided for, among other things, $12,632 in delayed draw loans (the “Delayed Draw Term Loans”). The Delayed Draw Term Loans had a maturity date of March 31, 2019, and an interest rate of 12% and 4% of paid in kind interest, payable quarterly in arrears according to the terms of the Credit Agreement. In addition, the Company and the Lenders agreed to enter into a restructuring services agreement, in form and substance acceptable to the Lenders in their sole discretion, on or prior to February 28, 2019, which date was extended on several occasions by the parties. Lateral is controlled by Richard de Silva, who joined the Company’s Board of Directors on October 18, 2019
The Fourth Amendment also provided for (i) amendments to the employment agreements between Benchmark, our former principal operating subsidiary, and Fred Sacramone and Brian McMahon, the founders of Benchmark who sold Benchmark to the Company in April of 2017 (the “Benchmark Sellers”); (ii) the issuance of a promissory note to Fred Sacramone for cash received in the principal amount of $1,000 (the “Sacramone Bridge Note”), which note originally matured on March 31, 2019, and was subsequently amended and restated on July 2, 2020 to extend the maturity date to September 30, 2020, and for which Mr. Sacramone was issued 356,513 shares of Common Stock; (iii) the appointment of a finance transformation officer (who was acting in the capacity of Chief Financial Officer from January 23, 2019 through July 15, 2019); and (iv) the issuance of an aggregate of 1,698,580 shares of the Company’s Common Stock to the Lenders.
Restructuring of Lateral Credit Agreement and Designation of Series H Preferred Stock
On July 2, 2019, the Company completed the debt restructuring contemplated under the Fourth Amendment by entering into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”) among the Company, Lateral and several Lenders. The Company also amended and restated the Series A convertible notes (as amended, the “Series A Notes”), Series B promissory notes (as amended, the “Series B Notes”) issued to the Benchmark Sellers, and the Sacramone Bridge Note (together with the Series A Notes and the Series B Notes, the “Benchmark Notes”).
Amended and Restated Credit Agreement Summary
Pursuant to the Amended and Restated Credit Agreement, the Delayed Draw Term Loans, which were continued as super senior term loans with an aggregate outstanding balance of $12,900 (the “Super Senior Term Loans”) were amended to: (i) extend the maturity to September 30, 2020; (ii) amend the interest rate to 12% per annum payable in cash; (iii) add a 4% extension fee to the principal amount (subject to reduction); and (iv) provide for monthly amortization payments based on available cash flow. In addition, the existing term loans under the Credit Agreement, with an aggregate balance of approximately $37,900 (“Lateral’s Existing Term Loans”) were amended to: (i) extend the maturity to April 30, 2021; (ii) amend the interest rate to 12% per annum payable in cash; (iii) add a 4% extension fee to the principal amount thereof (subject to reduction); and (iv) include monthly amortization payments based on available cash flow.
As consideration for the Amended and Restated Credit Amendment, the Company issued to the Lenders 1,500,000 shares of the Company’s common stock and warrants (the “Warrants”) exercisable to purchase 3,173,731 shares of the Company’s common stock (collectively, the “Lender Securities”) with an initial exercise price of $3.00 per share. Pursuant to the terms of the Warrants, in the event the Super Senior Term Loans were not paid and satisfied by October 31, 2019, the exercise per share of half of the Warrants would be automatically reset to $0.01 and in the event the Super Senior Term Loans were not paid by December 31, 2019, the exercise per share of the other half of the Warrants would be automatically reset to $0.01. The Company also agreed that on December 31, 2019, the aggregate number of shares of the Company’s common stock issuable upon exercise of the Warrants would be automatically adjusted on December 31, 2019 such that that Lateral and its affiliates would beneficially own, in the aggregate, inclusive of all shares of common stock previously issued, 25% of the outstanding shares of the Company’s common stock on a fully-diluted basis, subject to certain exceptions.
As additional consideration for the Amended and Restated Credit Agreement, the Company and Lateral entered into a registration rights agreement (the “Registration Rights Agreement”) whereby the Company agreed to register the common stock issued to Lateral. The Company and Lateral also entered into an investor rights agreement (the “Investor Rights Agreement”) whereby the Company agreed that within sixty days of its execution, the Company would set the number of directors on its Board of Directors at seven and Lateral would be entitled to nominate one of such seven directors.
Series A Notes and Series B Notes & Designation of Series H Preferred Stock
The Series A Notes and Series B Notes were also amended to extend the maturity date to July 30, 2021 and to amend the interest rate to 8% per annum to be paid in kind until the borrowings under the Amended and Restated Credit Agreement were repaid in full. The Sacramone Bridge Note was amended to extend the maturity date to September 30, 2020, to capitalize the accrued interest as of July 2, 2019 and to provide for monthly cash interest payments. Additionally, all of the foregoing notes were amended to provide for monthly amortization payments based on available cash flow.
As consideration for amending and restating the Benchmark Notes, the Company entered into subscription agreements (the “Subscription Agreements”) pursuant to which it issued to the Benchmark Sellers an aggregate of 1,951 shares of the Company’s Series A Preferred Stock and 296 shares of the Company’s Series A-1 Preferred Stock (collectively, the “Series A Preferred”), which the Benchmark Sellers immediately exchanged, pursuant to exchange agreements (the “Exchange Agreements”), for an aggregate of 100 shares of a new series of preferred stock (the “Series H Preferred,” and together with the Series A Preferred, the “Preferred Stock”). The Series H Preferred had no dividend rights, no liquidation preference, was not convertible and had perpetual voting rights equivalent to 51% of the total number of votes that could be cast by all outstanding shares of capital stock of the Company.
Foreclosure by Senior Secured Lenders
During July 2019, the Company was notified that judgments had been entered against the Company in favor of six holders of the Company’s convertible notes in the state of New York. Certain of these convertible noteholders sought to levy against the bank account of the Company’s former subsidiary, Benchmark, and filed an order directing the Company to turn over all of the Company’s assets. The Company’s failure to satisfy, vacate or stay these judgments constituted an event of default under the Credit Agreement.
As a result, on October 10, 2019, the Company consented to a Proposal for Surrender of Collateral and Strict Foreclosure (the “Foreclosure Proposal”), from Lateral, Lateral Builders LLC (“Lateral Builders”) and Benchmark Holdings, LLC (“Benchmark Holdings” and together with Lateral Recovery LLC (“Lateral Recovery”), the (“Foreclosing Lenders”)), pursuant to which the Lenders took possession and ownership of the Subject Collateral (see below) by means of a strict foreclosure by the Foreclosing Lenders (the “Benchmark Foreclosure”).
Pursuant to the Foreclosure Proposal, the Company transferred; (i) to Benchmark Holdings all of its (a) equity interests in Benchmark, the Company’s principal operating subsidiary, and (b) cash on hand in excess of levels specified in the Foreclosure Proposal; and (ii) to Lateral Recovery, all of the Credit Parties’ interests in certain commercial tort litigation claims, fraud claims, and insurance claims as specified in the Foreclosure Proposal (collectively, the “Subject Collateral”).
Also pursuant to the Foreclosure Proposal, Benchmark transferred $3,000 of cash to the Company. Additionally, Benchmark agreed to make a monthly cash payment to the Company, in the amount of $300 per month (the “Working Capital Cash Payments”), for purposes of funding certain of the Company’s remaining obligations related to accounts payable, indebtedness for borrowed money, convertible note obligations and other matters specified in the Foreclosure Proposal (the “Remainder Obligations”). Working Capital Cash Payments were to continue until the earlier of (i) October 10, 2021, (ii) the repayment in full of the Remainder Obligations or (iii) the occurrence of a Working Capital Termination Event (as defined in the Foreclosure Proposal). The cash infusion and Working Capital Cash Payments provided the opportunity for the Company to receive total cash payments of up to $10,200 over the next 24 months. Benchmark made a total of two Working Capital Cash Payments to the Company—one in each of the months of November and December of 2019—for aggregate Working Capital Cash Payments of $600.
Benchmark Holdings, as the holder of the following of the Company’s obligations, absolutely and unconditionally released and forever discharged the Company and the other Credit Parties from certain indebtedness previously held by Niagara Nominee L.P. totaling $4,900, the Lateral’s Existing Term Loans totaling $42,300 and the Super Senior Term Loans totaling $13,500 as each such term is defined in the Credit Agreement. Accordingly, Lateral’s Existing Term Loans and the Super Senior Term Loans were deemed fully paid and satisfied.
Additionally, pursuant to an Agreement Regarding Debt and Series H Preferred Stock (the “Debt and Series H Agreement”), dated October 10, 2019, entered into between the Company and Fred Sacramone and Brian McMahon, Messrs. Sacramone and McMahon released the Company and its affiliates from (i) all obligations represented by the Sacramone Bridge Note per the Credit Agreement, which had an outstanding amount equal to approximately $1,000 and (ii) indebtedness represented by the Series B Notes in the amount of $19,000. As a result, the total amount remaining outstanding under the Series A Notes and Series B Notes was $28,000 (the “Remaining Indebtedness”) with a due date of December 31, 2019.
The total debt relief provided pursuant to the Foreclosure Proposal and the related agreements and arrangements equaled an aggregate of $80,700.
In accordance with the Debt and Series H Agreement, the Remaining Indebtedness was to be automatically released and discharged as of December 31, 2019 unless (i) on or before November 10, 2019, the Company entered into a business combination transaction that enabled the Company’s common stock to remain listed on the NYSE American Exchange or any other U.S. national securities exchange and (ii) such business combination transaction was consummated on or before December 31, 2019 (such transaction, a “Qualified Business Combination”). Additionally, the Debt and Series H Agreement also required Messrs. Sacramone and McMahon to sell their shares of Series H Preferred Stock to the Company for a nominal price in the event an agreement for a Qualified Business Combination was entered into on or before November 10, 2019, and such Qualified Business Combination was consummated on or before December 31, 2019.
On November 8, 2019, the Company and Messrs. Sacramone and McMahon entered into an amendment to the Debt and Series H Agreement, pursuant to which the parties agreed to extend the date by which an agreement for a Qualified Business Combination must be entered into from November 10, 2019 to December 31, 2019 and to extend the date by which a Qualified Business Combination must close from December 31, 2019 to February 28, 2020.
On December 23, 2019, the Company entered into a separate agreement with Messrs. Sacramone and McMahon pursuant to which the Company repurchased all outstanding shares of its Series H Preferred Stock from Messrs. Sacramone and McMahon for a payment of $1.00 per share, as a result of which no shares of Series H Preferred Stock remain outstanding.
The Remaining Indebtedness remains an unpaid and outstanding Company liability. As of December 31, 2019, the outstanding balance of the Remaining Indebtedness was $28,000 (subject to the adjustment described below).
In order to facilitate the continued inflow of additional cash infusions from Benchmark and other agreements pertaining to the Remaining Indebtedness, the Board also determined that, as result of the completion of the Vision Transaction, Benchmark would no longer be obligated to continue making Working Capital Cash Payments to the Company. On January 10, 2020, Benchmark loaned $300 to the Company with a maturity date of October 1, 2020 and an annual interest rate of 10%. Furthermore, on January 27, 2020, the Company issued two senior promissory notes to Benchmark, one in the principal amount of $4,129 and the other in the principal amount of $600 (collectively, the “Senior Notes”), each such note secured by all of the Company’s non-real estate assets. The $4,129 note, which matures on December 1, 2020 and has an interest rate of 10%, obligates the Company to repay all monies previously paid or transferred to the Company pursuant to the Foreclosure Proposal, including (i) $3,000 in cash; (ii) two Working Capital Cash Payments totaling $600; and (iii) approximately $500 in cash remaining in a Benchmark bank account, was issued in consideration of a $6,000 reduction to the $28,000 Remaining Indebtedness. The $600 note, which matures on December 1, 2020 and has an interest rate of 10%, was issued to evidence the loan received by Benchmark on January 10, 2020 in the principal amount of $300 and an additional $300 loan from Benchmark received on January 27, 2020. As of the date of this filing the Remaining Indebtedness is $22,000.
On May 1, 2020, the parties entered into a second amendment to the Debt and Series H Agreement (the “Second Amendment”) pursuant to which Messrs. Sacramone and McMahon agreed to release and forever discharge the Remaining Indebtedness on the date on which the NYSE American Exchange files a Form 25 with the Securities and Exchange Commission (the “SEC”), delisting the Company’s common stock (the “Termination Date”), provided that in no event shall the Termination Date be any sooner than July 1, 2020 or any later than October 1, 2020.
Appointment of New Board and Committee Members
On April 1, 2019, James E. Shiah was appointed to the Board, effective April 15, 2019. Mr. Shiah joined then-directors Luisa Ingargiola, Christopher Ferguson, Patrick O’Hare, Brad Mitchell, and Fred Sacramone.
On May 29, 2019, Ms. Ingargiola and Messrs. Ferguson, O’Hare, and Mitchell resigned from the Board.
Jeanne Kingsley and Stephen Berini were appointed to the Board, effective June 10, 2019. Ms. Kingsley and Mr. James Shiah were appointed to the Audit Committee, which committee Mr. Shiah chaired. Mr. Shiah was also appointed to the Company’s Compensation Committee and its Nominating and Corporate Governance Committee. On June 24, 2019, Richard Omanoff was appointed to the Board and to be chair of the Nominating and Corporate Governance Committee. Mr. Omanoff was joined by Irving Rothman, who was appointed to the Board, effective June 25, 2019 and was appointed to the Company’s Audit, Compensation, and Nominating and Corporate Governance Committee.
On September 16, 2019, Irving Rothman resigned from the Board, followed by James Shiah, Jeanne Kingsley, and Stephen Berini who all resigned from the Board effective October 9, 2019.
On October 18, 2019, concurrent with the resignation of Fred Sacramone and Richard Omanoff, the Board appointed Michael P. Beys, Joseph F. Cunningham, Jr., Richard de Silva and Peter Ghishan as directors. The Board determined that each of Messrs. Beys, Cunningham and Ghishan is “independent” under NYSE American listing standards and other governing laws and applicable regulations, including Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Accordingly, Messrs. Cunningham and Ghishan were appointed to serve on the Audit Committee. Mr. Cunningham was appointed to serve as the chair of the Audit Committee and the Board determined that he was financially sophisticated as defined in the NYSE American governance standards. Messrs. Beys and Cunningham were appointed to serve on the Compensation Committee and Messrs. Beys and Ghishan were appointed to serve on the Nominating and Corporate Governance Committee.
Appointment of Interim CEO
On June 13, 2019, the Board of Directors appointed Fred Sacramone as the Company’s Co-Interim Chief Executive Officer. On June 27, 2019, the Board of Directors appointed Mr. Sacramone as the Company’s Interim Chief Executive Officer. Mr. Sacramone resigned on October 21, 2019, concurrent with the appointment of Stephen M. Goodwin.
Appointment of Interim CEO
On October 21, 2019, the Board of Directors appointed Stephen M. Goodwin as the Company’s Interim Chief Executive Officer. Mr. Goodwin replaced Fred Sacramone, who resigned concurrent with Mr. Goodwin’s appointment.
Appointment of Interim CEO
On December 11, 2019, the Board of Directors appointed Michael P. Beys as the Company’s Interim Chief Executive Officer. Mr. Beys replaced Stephen M. Goodwin, who resigned concurrent with Mr. Beys’s appointment. The Board of Directors appointed Mr. Goodwin as the Company’s Executive Vice President of Operations. Upon Mr. Beys’ appointment as Interim Chief Executive Officer, the Board of Directors determined that he no longer qualified as “independent” under NYSE American listing standards and applicable regulations, including Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Accordingly, the Board of Directors replaced Mr. Beys on the Compensation Committee with Mr. Ghishan and replaced Mr. Beys on the Nominating and Corporate Governance Committee with Mr. Cunningham.
Suspension of Trading of Common Stock
During March 2019, the Company received a series of letters from the NYSE American concerning its failure to comply with various continued listing requirements under the NYSE American Company Guide. On December 17, 2019, the Company received a letter from the staff of NYSE Regulation (the “Staff”), on behalf of the Exchange, stating that it had determined to commence proceedings to delist the Company’s Common Stock from the Exchange because, according to the Exchange, the Company or its management had engaged in operations that, in the opinion of the Exchange, were contrary to the public interest. On December 17, 2019 at market close, the Company’s Common Stock was suspended from trading on the NYSE American Market. The Company appealed this determination to the NYSE Listing Qualifications Panel (the “Panel”) of the Exchange’s Committee for Review, and a hearing regarding the Company’s continued listing was held on February 13, 2020. On March 9, 2020, the NYSE Office of General Counsel notified the Company that the Panel had determined to affirm the Staff’s decision to delist the Company’s shares from NYSE. The Company has since initiated steps to seek review of and/or appeal the Panel’s determination.
As of the date of the filing of this report, the Company’s Common Stock was listed on the NYSE American Market under the symbol FTNW but continued to be suspended from trading. In the event the common stock is delisted from the NYSE American Market, the Company intends to pursue other opportunities to have the common stock traded on a stock market, which may include one of the trading platforms operated by OTC Markets Group or the over-the-counter market.
Acquisition of Vision Property Assets
On December 20, 2019, the Company entered into a purchase agreement (the “Vision Purchase Agreement”) with (i) US Home Rentals LLC, a Delaware limited liability company and direct wholly owned subsidiary of FTE (“Acquisition Sub”), (ii) the holders (the “Equity Sellers”) of 100% of the equity interests in entities owned by the Equity Sellers that collectively hold a real estate asset portfolio consisting of 3,184 rental homes located across the United States (the “Entities”), (iii) Vision Property Management, LLC, a South Carolina limited liability company (“Vision” and together with the Equity Sellers, the “Sellers”), and (iv) Alexander Szkaradek, in his capacity as the representative of the Sellers (the “Sellers’ Representative”). On December 30, 2019, the parties amended the Vision Purchase Agreement (the “Amendment”) in order to address certain changes to the Vision Purchase Agreement, including, among other things, to allow the $9,750 balance of the cash portion of the purchase price to be paid in cash or short-term promissory notes, and to reduce the Sellers’ indemnification deductible to $100. On December 30, 2019, the Company completed the acquisition of the Entities pursuant to the Vision Purchase Agreement, as amended.
Pursuant to the Vision Purchase Agreement, as amended, Acquisition Sub purchased (a) all of the equity interests in the Entities and (b) all of Vision’s assets that are related to its business, including certain assumed contracts and assumed intellectual property, excluding certain specified assets for aggregate consideration of $350,000, consisting of (i) $250 of cash; (ii) $9,750 in promissory notes payable on or before March 31, 2020 as extended by the forbearance period; (iii) the amount of outstanding indebtedness of the Entities, which is approximately $80,000, (iv) 4,222,474 shares of the Company’s Common Stock, par value $0.001, which the parties valued at $32,000 which the Company is obligated to issue, and (v) shares of a newly designated Series I Non-Convertible Preferred Stock having an aggregate stated value equal to $228,000 which the Company is obligated to issue.
Divestiture of CrossLayer, Inc.
On January 16, 2020, the Company entered into an asset purchase agreement (the “CrossLayer Purchase Agreement”) with CBFA Corporation, pursuant to which CBFA acquired approximately $73 in accounts payable and approximately $100 in long-term supplier contracts.
Appointment of Interim CFO
On May 5, 2020, the Board of Directors appointed Ernest J. Scheidemann as the Company’s Interim CFO and Principal Financial Officer. In connection with his appointment, Mr. Scheidemann and the Company intend to enter into an Interim CFO Services Agreement. Mr. Scheidemann is a Certified Public Accountant. He holds a Certified Global Management Accountant and Certified Financial Forensics designation issued from the American Institute of CPAs. Mr. Scheidemann received a BA in Accounting from William Paterson University and MBA in Finance and International Business from Seton Hall University.
Subsequent Debt and Equity Transactions
Merchant Account Agreements
During January to March 2019, the Company paid $8,804 in principal payments, $2,005 in debt settlement payments and recognized a $419 gain on debt settlement on the remaining eighteen merchant account agreements with outstanding principal balances of $11,228 as of December 31, 2018.
Convertible Notes Payable
During January 2019, the Company entered into three convertible notes payable, borrowing an aggregate of $618, net of original issuance discounts of $40 and deferred financing costs of $28. Additionally, as inducement, the Company issued a total of 35,056 shares of the Company’s common stock with a market value of $113,042 on the date of issuance.
On March 10, 2020, the Company entered into a Securities Purchase Agreement with GS Capital Partners, LLC (“GS Capital”), to purchase an aggregate of $1,800 principal amount of a 6% Convertible Redeemable Note (“Note”), with a $125 original issue discount for a net purchase price of $1,675. Additionally, the Company issued 185,000 shares of its common stock as debt commitment shares. Interest may be paid in cash or shares at the option of the Company and GS Capital at its option may convert any or all of the principal face amount of Note outstanding into shares of the Company’s common stock.
Between January 2019 and April 2020, the Company repaid $6,292 of convertible note principal in cash and issued a total of 3,123,548 shares of the Company’s common stock for the conversion of $3,036 in convertible debt principal and $57 in accrued interest.
Between April 2019 and October 2019, the Company entered into settlement agreements with 9 holders of 14 individual convertible notes with outstanding principal balances of $5,010 as of December 31, 2018. The agreements provide for various settlement terms to consolidate outstanding principal and interest, add interest and penalties, remove conversion features and set new repayment schedules, the last of which ends January 2021. As part of four of the convertible note settlement agreements, the Company issued a total of 353,202 shares of FTE common stock with a market value of $378,416 on the date of issuance.
Notes and Capital Leases Payable
During April 2019, The Company entered into an Agreement to Participate in Sales Proceeds in regard to a sale of certain equipment with underlying notes payable and capital lease obligations totaling $837, with a total net book value of $1,926 as of December 31, 2018. As a result of the agreement, the Company received cash of $276, repaid debt totaling $752 and recognized a loss on sale of assets of $390.
On February 20, 2019, Company signed a 22 -month term note (“Term Note”) with LeoGroup Private Investment Access, LLC (the “Noteholder”). The Term Note was for $5,000, payable in monthly installments over twenty- two months bearing interest at a rate of 22% per annum. The Term Note was personally guaranteed by Anthony Sirotka, the Company’s former interim Chief Executive Officer, and is secured by the assets of the Company, subject to any senior rights or claims by the Company’s senior secured lender.
In connection with the Term Note, the Company also agreed to issue 1,005,751 shares of the Company’s common stock to Niagara Nominee, LP (“Niagara”). Niagara was issued the Shares for its role as co-guarantor of the Term Note to the investors of the Noteholder. Niagara is an affiliate of Lateral, the Company’s senior secured lender.
Related Party Notes
On February 12, 2020, the Company issued a senior promissory note to Lateral SMA Agent, LLC in the principal amount of $800, consisting of approximately $550 in expenses and advances previously made by Lateral on behalf of the Company and an additional $250 loan from Lateral. The $800 note is secured by all of the Company’s non-real estate assets pursuant to a security agreement of even date therewith and has a maturity date of November 15, 2020 and an annual interest rate of 10%.
On February 27, 2020, the Company issued a senior promissory note to Lateral SMA Agent, LLC in the principal amount of $75 for working capital purposes. The note is secured by all of the Company’s non-real estate assets pursuant to a security agreement of even date therewith and has a maturity date of November 15, 2020 and an annual interest rate of 10%.
On March 4, 2020, Cobblestone Ventures, Inc., an entity controlled by Michael Beys, the Company’s interim CEO and a member the Board, loaned the Company $100 for working capital purposes, pursuant to a demand note at 5% per annum. The note, together with accrued interest, was repaid on March 16, 2020.
On March 5, 2020, Mr. Ghishan, a member of the Board, loaned the Company $30 for working capital purposes, pursuant to a demand note at 5% per annum. The note, together with accrued interest, was repaid on March 16, 2020.
On April 16, 2020, Cobblestone Ventures, Inc. an entity controlled by Michael Beys, the Company’s interim CEO and a member the Board, loaned the Company loaned the Company $100 for working capital purposes, pursuant to a demand note at 10% per annum. The note, together with accrued interest, was repaid on May 8, 2020.
On April 29, 2020, we issued a senior promissory note to Lateral SMA Agent, LLC in the principal amount of $200 for working capital purposes. The note is secured by all of the Company’s non-real estate assets pursuant to a security agreement and has a maturity date of November 15, 2020 and an annual interest rate of 10%. The note, together with accrued interest, was repaid on May 8, 2020.
Stock Issuances 2019
The Company issued 35,056 shares of common stock with a market value of $113 for inducement shares to certain convertible note holders.
The Company issued 3,123,548 shares of common stock with a market value of $6,534 for conversion shares to certain convertible note holders.
The Company issued 353,202 shares of common stock with a market value of $378 in settlements with certain convertible note holder
The Company issued shares 62,839 of common stock with a market value of $218 to employees.
The Company issued 356,513 shares of common stock with a market value of $613 to an employee for providing the Company with $1,000 bridge note on February 12, 2019.
The Company issued 1,698,580 shares of common stock with a market value of $2,922 to it Senior Lender in accordance with Amendment No. 4 to the Lateral Credit Agreement dated February 12, 2019.
The Company issued 1,005,751 shares of common stock with a market value of $1,960, to a co-guarantor on a term note issued on February 20, 2019.
The Company issued 1,500,000 shares of common stock with a market value of $1,588 to its Senior Lender in accordance with the Credit Agreement dated July 2, 2019.
The Company issued 505,724 shares of common stock with a market value of $534 to a co-guarantor in accordance with the Credit Agreement dated July 2, 2019.
The Company issued 160,000 shares of common stock to individual investors, which resulted in net proceeds to the Company of $1,138.
The Company issued 250,000 shares of common stock with a market value of $248 as settlement with our former board of directors.
119,593 shares of the Company’s common stock were returned to outstanding as part of a settlement agreement.
Stock Issuances 2020
The Company issued 4,193,684 shares of common stock as part of the Note Exchange with TTP8, see Item 13. Certain Relationship with Related Parties.
The Company issued 185,000 shares of common stock with market value of $278 to Convertible Note holder as debt commitment shares.
The entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef